DXY Surges to Near 100 Ahead of US Inflation Data

The US Dollar Index (DXY) is trading around 99.90 on Wednesday as traders await the release of US inflation data later in the day.

This is the third consecutive day that the DXY has gained ground, and analysts at Commerzbank believe that the key issue for markets right now is whether inflation is falling quickly enough to prevent the Federal Reserve (Fed) from raising interest rates.

The Fed's next interest rate decision will be heavily influenced by the inflation report, with rising crude oil prices fueling arguments for a more aggressive policy stance. However, market expectations have softened slightly, with odds of a 25-basis-point Fed rate hike in September dropping to nearly 48% according to the CME FedWatch Tool.

Fed's Goolsbee has emphasized inflation as 'the biggest problem facing the economy', which reinforces a bias towards keeping policy restrictive even as growth and employment show signs of cooling. The FXS Fed Sentiment Index remains well above the neutral threshold, indicating that Fed communication is still firmly in hawkish territory.